Why Patents—Yes, Patents—Matter to Economic and Jobs Growth

If you’re concerned about the economy, pay close attention to a new report on patents. It could have implications in two of the biggest policy fights this year.

Metro areas that produce a lot of patents—and the inventiveness that that implies—are more likely to see above-average gains in population, productivity, jobs, and education, according to a report from the Brookings Institution, a nonprofit research and policy think tank. And the bottom fourth of metro areas, the ones that produce the fewest patents, could gain as much as $4,300 per worker over a decade if they amped up their patent production to match the top fourth.

“If we were able to get the roughly 250 metropolitan areas that do very little patenting up to the level of the 100 that do a great deal of patenting, we’d be richer in an extraordinary way,” says Jonathan Rothwell, a lead researcher on the study. “It would make really a huge difference to economic development.”

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The findings of the approximately 50-page report are clear: Inventiveness, as quantified by patents, is a major driver of long-term economic performance. And if lawmakers want to implement (or ignore) the lessons of the study, they’ll get their chance when they hash out potential deals on the nation’s fiscal future and on comprehensive immigration reform.

Patents alone will not boost an economy, of course; it’s the conditions that make for active patent-filing regions. Such areas are often hotbeds of creative entrepreneurship and home to universities or big corporations, which take advantage of various government incentives.

One of those incentives is federal funding for research and development, which produces patents “of especially high quality” and is associated with bigger metro-area productivity gains than normal patents, the report finds. The debate in the coming months over where to make spending cuts and how to apportion a new budget could have a huge impact on such spending.

“The conversations in Washington, D.C., seem to suggest that there’s a lot of pressure to reduce the budget for federal R&D,” Rothwell said. “The House Republican budget proposal explicitly mentions only supporting basic R&D, which is about a third of the federal R&D budget.”

Exactly how big is the impact of federal spending on R&D, and how much does it promote patents? That’s hard to estimate broadly, but there are some specific examples to explore. Take the multiagency Small Business Incubation Research Program, which doles out about $2 billion annually, according to the Brookings report.

“The average grant in 2011 was just under half a million dollars, while the average effect on productivity was large enough to add roughly $3.3 million dollars to the regional economy,” the report states. That’s a nearly sevenfold return on the government’s investment.

There are less direct ways to boost innovation, too. Despite being home to all of the world’s top 10 research universities, the U.S. ranks 24th when it comes to the share of its population ages 20 to 24 that holds a degree in science, technology, engineering, or math, a strong predictor of patenting. In the average metro area, 8.5 percent of the adult population over 25 has a STEM degree. But in Boulder, Colo., Corvallis, Ore., and San Jose—three of the top five patent producers per capita—the share of STEM-degree holders is over 20 percent.

Easing the immigration path for foreign workers with STEM degrees and increasing domestic funding for STEM education are at the heart of a new bipartisan Senate immigration bill aimed at reforming the visa system for high-skilled immigrants. And that could translate to real gains in innovation: A5 percent boost in the share of workers in an area with a STEM degree predicts an additional 176 patents per million residents, according to the study.

The report's conclusion is simple: create an environment favorable to innovation, and growth shouldn't be far behind.